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Market change, social and crowd wisdom

CRM took a significant turn in the last few years, neither good nor bad, really, but significant. The turn took us from what I will call core CRM, which primarily dealt with business to business (B2B) interactions to social CRM which deals with end customers or consumers, a.k.a. B2C.

Now, it would be wrong to assert that core CRM never addressed consumers or that social CRM has nothing to say about the B2B world, but the emphasis has shifted. Interestingly, both core and social CRM have an important emphasis on the call center and resolving customer issues for instance and that idea really straddles the two worlds. The dominant part of the conversation is now social and consumer oriented.

It wasn’t always like that. CRM was born from a frustration that sales managers had with knowing what their people were really doing. That drove the emergence — if not the popularity — of SFA. Sales force automation was, after all, an attempt to corral the freewheeling activities of sales people as much as it was an attempt to capture and make sense of the reams of sales data they produced. All of this existed with a backdrop of expanding markets where new products and new categories bloomed like a desert after a freak rainstorm.

But if you look at the marketplace in the last several years, it looks like a desert again. Demand cratered with the economy and companies that were able to make money were those who could understand demand patterns of individuals and cater to them.

James Surowiecki, author of “The Wisdom of Crowds” made an astute observation in his New Yorker column a couple of weeks ago when he showed that there are now two centers of activity in the marketplace where there had been only one for a long time. I think of this as the camel theory — one hump Dromedary, two humps Bactrian. Say what? Sure, it goes like this.

The conventional market we all know and love or at least tolerate can be represented as a bell curve, a single hump representing the range of quality, demand and ability to pay. For years, vendors simply aimed their offerings at the middle of the bell curve and pretty much scored big. If you couldn’t be successful that way your product or strategy was badly flawed.

But then something happened and rather than having one hump to contend with we suddenly had two. The Bactrian market’s humps cover two market types. The first provides mass produced, good enough products that are affordable by most people. The long period of new product development and category formation has, at least for the moment, paused leaving us with many fine products in the commoditization process (Hump 1). That leaves us with a plethora of choices of things that, while they are not customizable, are good, reasonably priced products. Surowiecki includes H&M clothing stores and flip cameras in this category and there are many others.

The second hump also features mass produced goods but these products usually come with more features, functions and are generally coveted by all of us. Think about Apple products when you think about the second peak. You can make a good argument that you don’t need an iPad or an iPhone or an iMac. There are cheaper products in the first hump that meet the need but somehow we manage to shell out the extra money. Apple is not alone either. We go to Starbucks for coffee and buy luxury cars when there are less expensive alternatives, too.

What’s interesting here is that the two-hump marketplace has made the single hump variety untenable. If you try to stay in the single hump world you find that your customers have gone elsewhere and you are in danger of going out of business. None of this should surprise us though.

In 2005 Geoffrey Moore wrote about the two-humped beast in a slightly different context. Moore said that the first hump represented companies that had to rely on operations and efficiency. They are the vendors who Surowiecki sees as offering good commoditizing products for a market most concerned with price.

The second hump in Moore’s construction are companies that rely on customer intimacy, they still sell products that need a bit of handholding if only because the attention connotes value in the eyes of the customer — think Genius Bar. Note here that Joe Pine’s vision of mass customization is bearing fruit if only because the customization is happening via personal attention and the vendor is still selling a mass produced good (maybe this is Pine’s other idea, the good as experience).

Understanding who their customers are remains among vendors’ greatest challenges. The young woman who shops at H&M might take a break from shopping at the Starbucks next door, for instance, where she might call a friend on her iPhone. That’s where social media and enterprise 2.0 ideas come in handy because no vendor can afford to lavish attention on customers like they did in the old days.

The difference between the two humps may be in how or where social strategies are applied. Denizens of the first hump use social strategies to identify their customers and their needs. The second hump cohort may use social strategies internally to marshal resources to meet the needs of the up-market buyer. As the economy improves, I expect more attention will be paid to the B2B side of the house and the second hump.